Politically, 2024 is considered the Voldemort of the years. Eurasia Group’s latest report, “Top Risks of 2024,” says so. The report reveals that three wars are set to dominate world affairs this year. The first two are Russia vs. Ukraine and Israel vs. Hamas, and the third that is ready to kick in is the United States vs. itself.
Both the Russia-Ukraine and Israel-Hamas conflicts are getting worse. Ukraine is losing significant international support, whereas Hamas or Palestinians have no obvious way to end the conflict.
One-third of the global population will cast ballots in the United States presidential election this year. The losing party—Republican or Democrats—will consider the result illegitimate and be unprepared to accept it. This will worsen the country’s political division.
These geopolitical risks can disrupt operations, impact supply chains, and threaten profitability. There are no adequate guardrails to prevent these conflicts from getting worse. But how global companies manage them will significantly influence their resilience and long-term success.
In this article, we’ll explore strategies you can adopt to manage geopolitical risks better.
#1 Engage in Discussions with Your Board
Violent conflicts and political strife, from Sudan and Niger to Gaza and Israel, have captured the apprehension and attention of people all around the world. Board members of businesses are no exception.
Many deliberate geopolitical risks to one degree or another. Yet those discussions often focus on market entry or exit, project, or specific investment. Thus, the broader strategic landscape, key decision points, and full range of risk scenarios and consequences are overlooked.
Geopolitical risks are a must-tackle issue for your board. Dedicate time to discuss with your board how to analyze your enterprise’s geopolitical risks and how you can build a more resilient company.
A more strategic approach is to assess the risks that matter the most to your business. Your business board can conduct a materiality test to choose what they should discuss in depth.
Take, for example, the Israel-Hamas conflict. The Middle East is believed to experience the most immediate consequence of this conflict. If this conflict directly affects your global company’s operations, dedicate time to discussing it. Do not waste time discussing other conflicts that don’t have an impact or direct impact on your business operations.
#2 Leverage Data-Driven Insights and Technology
Data-driven insights and technology are invaluable in helping companies navigate geopolitical risks. The Global Business Service (GBS) centers can harness machine learning, artificial intelligence (AI), and big data to monitor geopolitical developments in real time.
These centers analyze social media, news, and other information sources, which is why they can provide businesses with early warning indicators. This data-driven insight allows organizations to respond swiftly to emerging threats.
Technology, however, can also help you identify emerging geopolitical threats. You can use advanced analytics tools to analyze vast amounts of data, including news articles, social media trends, and economic indicators. This will help you assess the potential impact of geopolitical developments on the operations of your business.
Case in point– the conflict between Israel and Hamas. This war that broke out on 7 October 2023 could potentially disrupt the world economy. Bloomberg’s recent publication reveals that this conflict may put Israel in direct confrontation with Iran, which supplies money and weapons to Hamas. The U.S. and European Union have labeled Hamas as terrorists.
Bloomberg Economics estimates this could result in a hike in oil prices of as much as $150 a barrel and a drop in global growth by 1.7%. This could tip the world economy into recession, which would wipe out almost $1 trillion in global output. Another article published in Jewish Business News disclosed that Predatory Sparrow, or a group of Israeli hackers, takes credit for hacking into Iranian systems and shutting down 70% of all gas stations in Iran.
Some industries affected by the soaring gas prices are chemical, manufacturing, airlines, shipping, and trucking. Running a business in any of these industries will have a significant impact on your operations.
Staying informed about the latest developments in the Israel-Hamas conflict can help you understand the tectonic shifts that can impact your sector. Utilizing sentiment analysis algorithms can help interpret the latest news in Israel. Thus, you can gain insight into social unrest, political instability, or security concerns and prioritize risk mitigation efforts.
#3 Protect Your Balance Sheet, Not Just Physical Assets
In the face of geopolitical risks, it’s important to safeguard financial resilience.
A government’s ability to honor financial obligations is often lost when it enters into a state of crisis or disintegrates. This might quickly spread into the private sector and start a default domino effect.
Securing physical assets is crucial, but you must also consider the broader financial implications of geopolitical disruptions. What we mean to say is you must implement risk management strategies that safeguard the balance sheet from trade restrictions, currency fluctuations, and market volatility.
Diversifying your currency holdings and hedging against currency risks through financial instruments can help. You can mitigate the impact of exchange rate fluctuations on expenses, revenues, or cash flows by maintaining a balanced portfolio of currencies.
If you are a lender or a supplier to unstable markets, purchasing structured credit insurance might help. It helps businesses manage credit default risks, particularly those associated with economic crises, political decisions, or plain old non-payment by debtors.
#4 Secure Stakeholders’ Hearts and Minds
Global organizations have stakeholders not only from their home country but also from other countries. Their opinions and cultural reference points on issues such as privacy and human rights are likely to differ. This often results in serious disagreements.
You must engage with them to foster understanding and support for the company’s approach to managing geopolitical challenges. This will require you to communicate clearly about the potential impacts of geopolitical risks on stakeholders and how you plan to mitigate them.
At the same time, listen actively to the concerns of stakeholders and address their needs. By doing so, you will cultivate loyalty. Also, make sure to involve stakeholders in decision-making processes, such as contingency planning or risk assessments. Not only will this enhance buy-in and collaboration, but it will also strengthen your company’s ability to thrive in uncertain environments.
Wrapping it up, as global interconnectedness continues to increase, it has become increasingly necessary for companies to manage geopolitical risks.
Devising strategies well in advance can help you mitigate those risks effectively. These strategies can enhance your resilience and agility in navigating geopolitical uncertainties. Not only that, but they can help you thrive amidst geopolitical uncertainty and build a sustainable foundation for long-term success.
